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BANCROFT  LIBRARY 
SUTRO.  JUNE  19:. 9 


BANCROFT  UBRARV 


EXTRACTS 


FROM  THE 


Report  of  ttie  U.  S.  Picfc  Railwaj  Commission  J 

1888. 

By  ROBT.  E.  PATTISON. 


54 


BANCROFT  LIBRARY 
SUTRO.  JUNE  1939 


EXTRACTS 


FKOM  THE 


Report  of  the  U.  S.   Pacific  Railway 
Commission,  1888. 


By    ROBT.    K.    RATTISON. 

Governor  of  Pennsylvania. 


The  construction  companies  or  inside  combina- 
tions that  built  five  of  the  six  roads  have  destroyed 
or  concealed  their  books;  the  exception  being  the 
Central  Branch ;  and  the  Commission  has  been  em- 
barrassed in  its  work  by  the  refusal  or  failure  of 
the  companies  to  produce  the  accounts  relating  to 
the  actual  cost  of  construction,  or  to  exhibit  any 
paper  or  documents  that  would  enable  the  Com- 
mission to  ascertain  the  truth  as  to  this  most  im- 
portant factor  in  the  investigation.  The  books  of 
the  Credit  Mobilier,  which  built  the  Union  Pacific 
from  Omaha  to  Ogden;  the  books  of  tlie  Contract 
and  Finance  Company,  which  built  the  Western 
Pacific  from  San  Jose  to  Sacramento,  and  the  Cen- 
tral Pacific  from  Sacramento  to  Ogden;  the  books 
of  Shoemaker  &  Co.,  who  built  the  Kansas  Pacific ; 
and  the  accounts  of  John  I.  Blair,  who  built  the 
Sioux  City  and  Pacific  Railroad — all  these  are 
missing.  From  the  minutes  and  accounts  of  the 
railroad  companies,  and  from  fragmentary  infor- 
mation gathered  from  various  sources,  it  is  dis- 
closed that  the  officers  of  at  least  three  of  these 
companies  made  false  statements  under  oath,  in 
affidavits  now  on  file  in  the  Interior  Department. 
From  these  affidavits  the  following  has  been  com- 
piled : 


STOCK  TABLE. 


Company. 

Stock  act- 
ually paid 
iu. 

Stock  paid  in 
as  sworn  to. 

Names  of  deponents 

Date  of  affi- 
davit. 

Union  Pacific 

$400,650 
250,000 
760,000 
386,700 

136,702,300 

5,072,500 

54,283,190 

C80,600 

Oliver  Ames 

Sept.  27, 1870. 
Sept.  28,  lb72. 
Sept.  18,  1871. 
Sept.  21,  18G9. 

Kansas  Pacific... 
Central  Pacific... 
Central  Branch.  .. 

R.  K.Carr 

Leland  Stanford 

K.  M.  Pomeroy 

Total 

?1,797,  350 

$97,098,590 

It  is  no  answer  to  the  Government  that  the 
managers  of  these  companies  did  only  that  which 
the  managers  of  raih^oads  in  other  sections  did. 
These  lines  were  built  upon  public  credit.  They 
were  public  highways  in  the  broadest  sense  of  that 
term.  The  managers  were  acting  as  trustees  of  a 
national  highway,  and  they  can  not  plead  any  law- 
ful justification  for  making  false  affidavits,  which 
state  that  $97,098,690  of  stock  was  actually  paid 
for,  when  in  fact  less  than  two  millions  had  been 
so  paid  for. 

THEIR   RELATIONS   TO    THE    PUBLIC. 

The  original  purpose  of  Congress,  as  set  forth  in 
the  act  of  July  1,  1862,  in  granting  subsidies  for 
the  construction  of  the  Pacific  roads,  was  to  pro- 
mote the  public  interest,  and  the  companies  were 
made  trustees  for  that  purpose;  but  the  public  in- 
terest has  been  subordinated  by  these  companies 
to  the  stockholding  interest,  upon  the  claim  that 
the  stockholders  owned  the  railroads  and  could 
manage  their  own  business  in  their  own  way. 
Nearly  every  obligation  which  these  corporations 
assumed  under  the  laws  of  the  United  States,  or 
as  common  carriers,  has  been  violated.  Their 
management  has  been  a  national  disgrace.  Since 
the  date  of  their  inception  they  have  been  conduc- 
ted upon  a  purely  speculative  basis.  Their  per- 
manent prosperity  has  been  lost  sight  of,  while 
their  managers  greedily  strove  for  temporary  ad- 
vantage. For  fourteen  years  the  Union  Pacific  and 
the  Central  Pacific  were  practically  free  from  com- 
petition  for  a  stretch  of   1,800  miles  across  the 


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747 1-^- 


continent.  They  were  independent  of  many  of 
those  disturbing  elements  which  have  been  pleaded 
in  extenuation  of  the  vicious  practices  of  railroads 
in  other  parts  of  the  country,  and  yet  they  injec- 
ted secrecy  into  their  affairs,  inaugurated  favoritism 
and  corruption  in  their  management,  and  at- 
tempted  to  destroy  competition.  They  organized 
pools  for  the  professed  purpose  of  securing  cer- 
tainty, uniformity  and  permanency  in  freight  rates, 
but  they  did  not  respect  the  pools  which  they 
entered  into  when  immediate  advantages  could  be 
obtained  by  a  breach  of  good  faith. 

Mr.  Huntington  testified  before  the  Commission 
that  ''  competition  is  killing,"  and  that  there  ought 
to  be  only  one  railroad  for  the  whole  country. 
The  aided  companies  combined  with  others  to  tax 
the  communities  which  they  served,  and  they 
forced  the  consuming  classes  in  all  sections  of  the 
country  to  contribute  to  the  payment  of  interest 
and  dividend  upon  the  fictitious  capital  which 
they  had  created.  They  increased  the  cost  of 
living.  They  laid  proprietary  claim  to  the  traffic 
of  large  sections  of  the  country.  They  squandered 
millions  of  their  money  to  ^'protect"  their  terri- 
torial claims,  while  expending  other  millions  in 
encroachments  upon  the  territory  claimed  by 
other  companies.  They  constituted  themselves 
the  arbiters  of  trade.  They  attempted  to  dictate 
the  channels  that  trade  should  follow  and  fixed 
rates  of  transportation  that  were  extortionate. 
They  charged  all  that  the  traffic  would  bear,  and 
appropriated  a  share  of  the  profits  of  every  in- 
dustry by  charging  the  greater  part  of  the  differ- 
ence between  the  actual  cost  of  production  and 
the  price  of  the  article  in  the  market.  They  dis- 
criminated between  individuals,  between  localities, 
and  between  articles.  They  favored  particular 
individuals  and  companies.  They  destroyed  pos- 
sible  competitors,   and  they   built   up    particular 


localities  to  the  injury  of  other  localities,  until 
matters  had  reached  such  a  pass,  that  no  man 
dared  engage  in  any  business  in  which  transporta- 
tion largely  entered  without  first  soliciting  and 
obtaining  the  permission  of  a  railroad  manager. 
They  departed  from  their  legitimate  sphere  as 
common  carriers  and  engaged  in  mining  articles 
for  transportation  over  their  own  lines.  They  ex- 
erted a  terrorism  over  merchants  and  over  com- 
munities, thus  interfering  with  the  lawful  pursuits 
of  the  people.  They  participated  in  election 
contests.  By  secret  cuts  and  violent  and  rapid 
fluctuations  in  rates  they  menaced  business,  para- 
lyzed capital,  and  retarded  investment  and  devel- 
opment. 

THEIR  RELATIONS  TO    THE   GOVERNMENT. 

During  the  five  ^^ears  from  1864  to  1869,  upon 
the  claim  that  their  roads  were  fully  completed, 
these  companies  obtained  bonds  from  the  Govern- 
ment; but  when  the  Government  called  upon  them 
to  pay  a  percentage  of  their  net  earnings  into  the 
Treasury,  as  was  stipulated  in  the  original  contract, 
they  contended  that  their  roads  were  not  fully 
completed  until  1874,  and  refused  to  make  any 
payments  to  the  Government,  though  one  of 
them,  the  Central  Pacific,  had  been  declaring  divi- 
dends in  the  mean  time.  They  resisted  the  claims 
and  demands  of  the  Government  at  every  point, 
and  resorted  to  every  device  their  ingenuity 
could  invent  in  their  efforts  to  evade  the  plain 
requirements  of  the  law.  In  transporting  troops  and 
supplies  for  the  Government,  they  violated  the 
contract  obligation  to  charge  reasonable  rates  by 
charging  more  than  they  charged  to  private  shippers 
for  the  same  kind  of  service.  The  reports  of  the 
Union  Pacific  show  that  the  average  rates  paid  by 
the  Government  to  that  corporation  were  higher 
than  those  received  by  that  company  from  other 
sources.     The  same  is  more   or  less  true  of  the 


BANCROFT  LIBP^nv 


other  bond-aided  companies.  The  overcharges 
upon  the  Government  by  the  Central  and  Union 
Pacific  Companies  since  1880,  are  estimated  to 
have  been  as  follows: 

Union  Pacific $802,407.33 

Central  Pacific 167,558.63 

PROFITS  OF  $278,023, e357.63  in  operating  the  roads. 

The  reports  of  these  companies  show  the  follow- 
ing figures  relating  to  operation,  disclosing  a  profit 
or'net  earnings  of  $278,023,357.63,  equaling  fi'fteen 
million  dollars  a  year. 

EAENINGS  TABLE. 


Koad. 

Gross  earn- 
ings. 

Operating 
expenses. 

Net  earnings 

Union  ond  Kansas  Pacific.        ..  . 

?315,S03  504.66 

274,139.116.27 

9,187,359.50 
12,849,463.47 

$169,916,078.90 

149,199,102.40 

6,423,596.82 
7,917.o08.15 

$145,387,425.76 

121,940,013.87 

2,763,762.68 
4,932,155.02 

Central  Pacific  Railroad,  from  1863  to 
December  31, 1886 

Sioux  City  and  Pacific  Railroad,  from 
July  80, 1869,  to  Juno  30, 1887 

Central  Branch  Union  Pacific 

Total 

$611,470,443.90 

$333,456,080.27 

$278,023,357.63 

OVER  $25,000,000  FOR  POOLS,  rebates,  and  over- 
charges. 
In  addition  to  the  gross  earnings  given  as  above, 
the  bond-aided  companies  received  the  following 
sums,  w^hich  they  subsequently  paid  out  on  account 
of  pools,  subsidies,  rebates,  overcharges,  etc. : 

POOLS,  REBATES  AND  OVERCHARGES. 


Road. 

Pools. 

Rebates  and 
overcharges. 

Total. 

Union  Pacific         ) 

$4,004,512.48 

$11,577,091.62 

Kansas  Pacific           .                       ...\ 

$15,581,604.10 

Sioux  City  and  Pacific 

401,832  01 

Central  Pacific.      ...             

9,882,799.61 

Total 

$25,866,235.72 

LOSSES   SUSTAINED   BY  THE   GOVERNMENT. 

The  Central  Pacific  and  Union  Pacific,  between 
them,  have  paid  over  $4,000,000  to  the  Pacific 
Mail  Steamship  Company  to  maintain  high  rates. 
To  branch  lines  the  Union  Pacific,  since  1881,  has 


also  given  various  amounts  estimated  at  $2,400,000, 
and  the  Central  Pacific  $520,762.97,  on  account  of 
constructive  mileage.  All  of  the  sums  paid  out  for 
pools,  rebates,  overcharges,  etc.,  amounting  to 
$25,866,235.72,  were  deducted  by  the  companies 
from  the  gross  earnings  actually  received  by  them 
before  stating  the  amount  which  was  reported  to 
the  Government  as  their  gross  earnings.  In  other 
words,  they  refused  to  consider  and  designate  this 
sum  of  $25,866,235.72  as  part  cf  their  gross 
earnings  because  they  subsequently  paid  it  out  for 
pools  and  rebates.  In  this  respect,  as  well  as  in 
respect  to  charges  for  general  expenses  that  should 
have  been  charged  against  auxiliary  companies, 
the  reports,  as  made  by  the  Union  Pacific  Com- 
pany to  the  Government,  were  erroneous.  For  the 
same  reasons  and  also  because  the  Central  Pacific 
Company  was  charged  for  and  paid  expenses  in- 
curred by  and  for  the  Southern  Pacific  Company 
(the  case  of  Senator  Norwood  being  a  conspicuous 
illustration),  the  reports  made  by  the  Central 
Pacific  Company  to  the  Government  were  errone- 
ous. The  losses  sustained  by  the  United  States  on 
account  of  erroneous  reports  and  overcharges 
amounts  to  over  $8,000,000. 

PAYiMENTS   FOR   IMPROPER  PURPOSES. 

Large  sums  were  also  applied  to  improper  jmr- 
poses.  In  the  accounts  of  the  Sioux  City  and 
Pacific  Railroad  Company  this  item  amounted  to 
$263,81-2.08  for  losses  incurred  in  operating  the 
Fremont,  Elkhorn  and  Missouri  Yalley  Railroad, 
in  which  the  directors  of  the  Sioux  City  and 
Pacific  Railroad  were  interested. 

In  the  accounts  of  the  Central  Pacific  Railroad 
Company,  this  diversion  of  earnings  amounted  to 
many  millions  through  contracts  made  by  Messrs. 
Stanford,  Huntington,  Hopkins,  and  Crocker,  with 
themselves,  for  construction,  leases,  repairs,  etc. 
They  constructed  1,171  miles  of  adjunct  lines,  at 


•^CROFT  LIBRARY 
SUIRO.  JUNE  I93P 


a  cost  of  $2T,216,931.01.  On  account  of  that 
construction  in  addition  to  a  small  cash  payment 
they  issued  bonds  to  themselves  to  the  amount 
of  $33,722,000,  and  stock  to  the  amount  of 
$49,005,800,  making  a  total  issue  of  $82,727,800, 
of  which  $55,539,554  represented  inflation. 

Then,  as  directors  of  the  Central  Pacific,  they 
took  leases  of  their  own  lines  for  the  Central 
Pacific  for  $3,490,828.81  per  annum;  which  was  at 
the  rate  of  nearly  1 3  per  cent. 

Fifteen  months  ago  three  of  these  directors  con- 
tracted with  themselves  to  build  an  extension  of 
the  California  and  Oregon  division  of  the  Central 
Pacific  from  Delta  to  the  boundary  line  of  Oregon, 
a  distance  of  103  miles.  In  payment  they  issued 
stock  to  the  amount  of  $8,000,000  and  bonds  to 
the  amount  of  $4,500,000,  the  market  value  of  the 
stocks  and  bonds  at  that  time  being  $8,340,000. 
The  actual  cost  of  construction  was  $3,505,609,  so 
that  they  personally  profited  by  their  own  votes 
by  that  single  transaction  to  the  extent  of  $4,834- 
391.  Mark  Hopkins  is  dead,  but  his  interest  is 
still  maintained  for  his  estate  and  heirs. 

In  following  up  the  dealings  of  these  directors 
with  the  Central  Pacific  Railroad  Company  and 
its  adjunct  companies,  it  is  found  that  Messrs. 
Stanford,  Huntington,  Hopkins,  and  Crocker  re- 
ceived over  $142,000,000  in  cash  and  securities 
through  the  Contract  and  Finance  Company,  the 
Western  Development  Company,  the  Pacific  Im- 
provement Company,  and  dividends  of  the  Central 
Pacific  Railroad  Company.  In  addition  to  this 
sum  of  $142,000,000,  they  also  made  large  profits 
in  the  operations  of  fifteen  or  more  other  com- 
panies, which  were  directly  or  remotely  sapping 
the  revenues  of  the  Central  Pacific  Company.  The 
total  payments  by  the  Central  Pacific  on  account 
of  rentals  amounted  to  $29,912,373.49. 


ACCOUNTS  AND  VOUCHERS  OF  THE  AIDED  COMPANIES. 

The  same  company  also  expended  $-1,818,355.07/ 
of  which  the  managers  decline  to  give  any  expla- 
nation or  to  permit  others  to  explain.  As  the  re- 
sources of  the  company  have  been  diminished  to  the 
extent  of  these  expenditures,  and  as  the  road  itself 
will  not  yield  sufficient  to  satisfy  the  Government 
claim,  it  is  apparent  that  the  United  States  are 
eventually  the  losers  by  those  disbursements,  most 
of  which,  as  shown  by  the  Huntington  letters, 
were  applied  to  corrupt  public  men  and  influence 
legislation. 

In  the  accounts  of  the  Union  Pacific,  it  was  found 
that  $38,000,000  of  the  funds  of  that  company  had 
been  expended  for  the  construction  of  branch  lines, 
that  many  millions  additional  were  squandered  in 
purchases  of  bankrupt  branch  lines  at  excessive 
prices,  and  that  the  earnings  of  the  express  and 
telegraph  service  of  that  company,  as  well  as  of 
the  other  bond-aided  companies,  were,  in  violation 
of  law,  placed  under  the  control  of  express  and 
telegraph  companies  in  which  some  of  the  mana- 
gers of  the  Union  and  Central  Pacific  Companies 
were  largely  interested  and  of  which  they  were 
the  main  beneficiaries. 

The  balance  sheet  of  the  Central  Pacific  for  18 86 
should  have  shown  a  deficit  of  over  $14,000,000 
in  the  profit  and  loss  account,  but  by  omitting 
from  the  debit  side  the  accumulated  interest  which 
the  Government  had  advanced*  amounting  to 
$31,869,475.20,  and  by  marking  up  its  lands  in  its 
asset  column  to  $23,500,000,  when  the  actual 
value  was  $12,500,000,  as  appears  from  the  testi- 
mony of  the  company's  land  agent,  the  company 
made  a  showing  of  an  apparent  surplus  of  over 
$28,000,000. 

The  early  accounts  of  the  Union  Pacific  disclose, 
among  other  interesting  items,  the  following: 


BANCROFT  LIBRARY 
SUTRO.  JUNE  1939 


9 


September  12,  1871. 

First-mortgage  bonds  for  $247,000,  which  should  be  on 

hand,  but  which  are  not $247,000 

United  States   110  6  per  cent,  currency  bonds,  which 
should  be  on  hand,  but  are  not 110,000 

$347,000 

The  book  accounts  of  the  Union  Pacific  prior  to 
1880,  are  frequently  unsupported  by  vouchers, 
and  for  some  years  there  are  practically  no 
vouchers  to  establish  the  correctness  of  the  books. 
Since  1880,  there  were  expenditures,  in  connec- 
tion with  legislation  in  Western  States,  which 
were  not  properly  vouched  for. 

The  Central  Pacific  Company  also  loaned  its  funds 
to  its  officers  to  enable  them  to  construct  the  South- 
ern Pacific,  a  competing  line,  across  the  continent. 

The  accountants  of  the  commission  report  that 
no  vouchers  exist  to  show  disbursements  by  the 
Central  Branch  of  the  Union  Pacific,  and  that  all 
the  vouchers  of  the  Sioux  City  and  Pacific,  from 
1864  to  1880,  are  missing,  with  the  exception  of  a 
few  cash  vouchers. 

LEGAL   EXPENSES. 

Large  sums  were  also  squandered  by  some  of 
the  bond-aided  companies  to  pay  for  the  services 
of  lawyers  to  influence  legislation,  the  total  legal 
expenses  of  the  companies  being  as  follows: 

Union  Pacific  and  Kansas  Pacific $2,349,554  00 

Central  Branch 333,661  65 

Sioux  City  and  Pacific 37,287  75 

Central  Pacific 2,361, 154  88 

Total $5,081,659  08 

A  large  sum  which  had  been  expended  by  the 
Central  Pacific  for  legislation  was  posted  under 
the  head  of  ''general  expenses."  The  addition  of 
that  sum  would  materially  increase  the  total  pay- 
ments on  account  of  legal  expenses. 


10 


LAND   PATENTS   AND   TAX   PAYMENTS. 

The  refusals  of  the  Central  Pacific  to  pay  its 
taxes  to  the  State  of  California  have  been  so  per- 
sistent and  so  flagrant,  and  extended  over  so  long 
a  period  of  years,  that  the  Governor  of  California, 
on  March  24,  1884,  issued  a  proclamation  setting 
forth  the  fact  that  for  four  years  the  railroads  of 
the  State  (the  Central  Pacific)  had  refused  to 
obey  the  laws  imposing  taxes  upon  their  property 
and  calUng  a  special  session  of  the  legislature  to 
devise  methods  for  enforcing  a  compliance  with  the 
laws  of  the  State.  The  Central  Pacific  had  resis- 
ted State  taxation  on  the  ground  (see  p.  102,  Re- 
port of  Railroad  Commissioners  of  California  for 
1883),  that  it  had  been  constructed  under  act  of 
Congress  of  July  1,  1862.  When  the  Commis- 
sioners examined  Mr.  Leland  Stanford,  in  San 
Francisco,  he  insisted  that  the  Central  Pacific  Com- 
pany was  a  State,  and  not  a  Federal  corporation. 

The  Central  Pacific  has  selected  only  one-half  of 
its  land  grant  in  California  that  has  been  surveyed, 
and  it  has  failed  to  select  180,000  acres  in  that 
State  that  have  been  surveyed  since  the  completion 
of  the  road. 

Of  the  grant  to  the  Central  Pacific  in  Nevada, 
700,000  acres  were  surveyed  at  the  date  of  the 
completion  of  the  road,  and  about  2,000,000  acres 
are  now  surveyed.  The  company  has  selected 
about  one-fourth  of  its  land  grant  in  that  State. 

Of  the  grant  to  the  Central  Pacific  in  Utah,  of 
which  250,000  acres  were  surveyed  at  the  date  of 
the  completion  of  the  road  in  1809,  no  lands  were 
selected  until  February,  1884,  nearly  fifteen  years 
after  the  completion  of  the  road. 

Because  of  the  vicious  methods  actually  pursued 
by  the  bond-aided  companies  the  Government  has 
been  defrauded  of  the  bulk  of  its  advances,  ship- 
pers have  been  taxed  to  the  extent  of  over  $248,- 
000,000,  and  liabilities  to  the  amount  of  $389,517,- 


BANCROFT  LIBRARY 
SUTRO.  JUNE  IP3C 


n 

265  have  been  heaped  upon  the  properties;  the 
total  Habilities  of  these  companies  to  the  pubUc  and 
Government  on  Dec  31,  1886,  being  as  follows: 

Union    Pacific,   including    St.    Joseph    and    Grand 

Island  guarantee $203,379,555  00 

Central  Pacific 171,908,784  GO 

Sioux  City  and  Pacific 7,392,447  17 

Central  Brancli 6,836,470  16 

$389,517,205  33 

These  companies  have  paid  out  the  following 
sums  in  interest  and  dividend : 

INTEREST  AND  DIVIDENDS. 


COMPANY. 


INTEREST. 


DIVIDEND. 


Union  Pacfiic    \ 

Kansas  Pacific  J 

Central  Branch 

Sioux  City  and  Pacific. 
Central  Pacific 


882,742,850  28 

1,882,826  10 

1,700,618  67 

53,877,031  15 


$28,650,770 

150,000 

180,280 

31,308,055 


$140,212,332  20  $63,298,105 


It  is  not,  therefore,  a  matter  of  surprise  that 
they  are  unable  to  pay  the  Government  debt  and 
that  their  resources  have  been  diminished  to  such 
an  extent  as  to  give  the  Government  very  little 
return  for  its  loans. 

The  officials  of  the  Central  Pacific  said  that  the 
aided  portion  of  that  line  was  not  worth  more 
than  the  first  mortgage  of  $27,855,680,  which  is 
prior  to  the  Government  lien,  thus  leaving  the 
Government  without  any  return  for  its  advances. 
The  majority  of  the  Commission  recommended  an 
extension  of  the  time  for  payment  of  the  debts  of 
all  the  companies  for  fifty  years  on  certain  terms. 
The  testimony  shows  that,  except  the  Union  Pa- 
cific, none  of  these  companies  have  agreed  to  or 
will  or  can  accept  the  terms  recommended  by  the 
majority.  The  traffic  manager  of  the  Central  Pa- 
cific testified  that  his  company  could  not  pay  the 
debt  and  that  an  extension  for  an  indefinite  time 
would  not  be  sufficient  to  enable  it  to  do  so.  The 
fact  is  that  as   to  all  the  companies  except  the 


12 


Union  Pacific  their  bankruptcy  is  so  complete  and 
irretrievable  that  no  part  of  their  indebtedness  can 
ever  be  recovered  by  the  Government  except  by 
immediate  compulsory  legal  process.  Extension 
of  time  for  payment  therefore  means  in  reaUty  but 
an  increase  of  the  amount  of  the  debt  and  the 
making  of  its  recovery  the  more  hopeless.  The 
bonds  of  the  Union  Pacific  provided  for  in  the  ma- 
jority report  would  sell  fjor  about  50  cents  on  the 
dollar,  and  the  bonds  of  the  other  companies  would 
not  be  negotiable.  The  actual  effect,  therefore,  of 
the  report  of  the  majority  of  the  Commission,  is 
that  its  recommendation  of  extension  of  the  time 
for  payment  is  impractical  and  impotent  as  to  all 
these  companies  except  the  Union  Pacific,  and,  if 
adopted,  could  only  result  in  the  failure  of  the 
Government  to  realize  any  portion  of  the  indebted- 
ness and  would  be  su  l3S t ant i ally  a  gift  of  that 
sum  to  those  companies.  For  this  reason,  there- 
fore, the  recommendation  of  the  majority  will  be 
considered  only  so  far  as  it  applies  to  the  Union 
Pacific  Railway  Company. 

The  people  of  the  West  should  be  freed  from 
the  incubus  of  this  enormous  load.  Eventually 
the  consuming  classes,  and  not  the  stockholders, 
must  pay  this  bill  if  extension  of  time  be  granted, 
and  it  will  be  ruinous  to  the  communities  which 
are  dependent  on  the  Union  Pacific  if  they  are 
forced  to  bear  their  share  of  this  great  burden, 
while  communities  on  other  roads  bear  only  the 
burdens  of  moderate  capitalization.  So  long  as  the 
Union  Pacific  Railway  Company  is  forced  to  carry 
this  debt,  enterprise  and  development  along  its  line 
will  be  measurably  repressed. 

The  extension  being  unwise  and  impracticable, 
there  is  only  one  course  open  to  Congress,  and  that 
is  an  immediate  winding  up  of  the  affairs  of  all 
the  companies,  enabling  the  Government  to  with- 
draw at  once  from  all  connection  with  the  running 


BANCROFT  LIEHARY 
iUTRO.  JUNC  1939 


13 


of  railroads,  or  sharing  in  the  profits  of  their  man- 
agement. There  ought  to  be  an  end  to  the  part- 
nership between  the  Government  and  the  Pacific 
raih'oads;  a  speedy  and  absolute  divorce. 

The  only  method  by  which  this  result  can  be 
reached  is  that  which  was  suggested  by  Justice 
Hunt  in  the  Credit  Mobilier  cases.  It  is  the  alter- 
native pointed  out  by  the  Wilson  committee  of 
Congress  in  the  event  of 'the  failure  of  the  equity 
proceedings  in  the  United  States  Courts.  It  is  the 
course  that  Congress  directed  the  Attorney-Gen- 
eral, by  resolution  of  April  10,  1869  (section  4), 
to  take  against  the  Union  Pacific — that  is,  the 
forfeiture  of  the  charter. 

The  beginning  of  proceedings  at  this  time  to 
cause  the  forfeiture  of  the  charters  of  these  com- 
panies because  of  their  violations  of  law  and  fail- 
ure to  keep  their  contract  with  the  Government  is 
only  to  anticipate  by  a  few  years  the  result  which 
will  be  inevitable  when  the  bonds  mature  in  1895 
and  1897.  To  wait  until  then  before  instituting 
legal  proceedings  would  not  avert  the  result,  but 
would  further  jeopardize  the  interests  of  the  Gov- 
ernment and  increase  the  amount  of  the  indebted- 
ness. It  should  be  borne  in  mind  that  it  is  a  fact^ 
admitted  by  every  officer  of  these  roads  who  tes-^^ 
tified  before  the  Commission,  and  overwhelmingly  . 
proved  by  the  evidence  submitted,  that  the  pay- 
ment of  the  debts  at  maturity,  in  1895  and  1897, 
can  under  no  circumstance  bo  expected.  The  rail- 
road officials,  the  Commissioners  and  every  intelli- 
gent citizen,  concur  in  the  correctness  of  this  state- 
ment. Upon  forfeiture,  the  appointment  of  a  re- 
ceiver should  be  applied  for  to  provide  for  the  im- 
mediate settlement  of  the  Government's  debt. 
This  course  involves  no  actuarial  computations  or 
involved  legal  problems.  It  is  the  direct  path  to 
the  complete  solution  of  a  tangle  into  which  the 
Government  should  never  have  been  drawn.    This 


n 


14 


course  is  not  recommended  for  the  purpose  of  pun- 
ishing this  company,  or  its  stockholders,  for  the 
willful  and  continuous  violation  of  obligations  im- 
posed by  law,  but  to  withdraw  the  Government 
from  further  connection  with  private  enterprises. 
The  stockholders  would  have  the  same  right  to  buy 
that  others  would  have. 

In  this  way  the  Government  would  cut  loose 
from  all  participation  in' railroad  management;  it 
would  recover  its  debt,  and  put  its  seal  of  condem- 
nation upon  the  multiplied  wrongs  that  have 
marked  the  administration  of  that  trust. 

The  capital  and  indebtedness  of  the  purchasing 
companies  should  be  limited  to  the  estimates  of 
the  cost  of  reproduction  as  made  by  the  inspecting 
engineer  of  the  Commission — 66f  per  cent,  in 
bonds  and  33 J  per  cent,  in  stocks.  THq  pur- 
chasing company  should  bo  confined  solely  to 
the  business  of  a  common  carrier,  operating  rail- 
road and  telegraph  lines,  and  should  be  forbidden, 
directly  or  indirectly,  to  invest  in  the  bonds  or 
securities  of  companies  other  than  railroads,  or  in 
railroads  that  are  parallel  or  competing,  or  to 
acquire  by  purchase  or  otherwise,  any  interest  or 
control  in  any  competing  or  parallel  line.  The 
officers  of  the  company  should  be  prohibited  from 
being  interested  in  any  competing  or  parallel  lines, 
and  such  company  should  not  be  permitted  to 
hold  any  real  estate,  except  such  as  may  be  neces- 
sary for  its  legitimate  business,  and  it  should  be 
allowed  to  issue  stocks  or  bonds  only  for  money, 
labor  done,  or  money  or  property  actually  received. 
The  sale  should  also  be  made  upon  the  condition 
that  the  franchises  should  be  exercised  thereafter, 
subject  to  the  regulation  and  control  of  the  Gov- 
ernment, in  the  public  interest. 

Such  a  course  would  force  other  transcontinental 
lines  to  a  similar  basis,  and  would  benefit  consu- 
mers in  all  parts  of  the  country.     Transportation 


1 


BANCROFT  LIBRARY 
SUTRO.  JUNE  I9CQ 


15 


would  be  cheapened;  the  companies  would  be 
liberated  from  the  crushing  weight  of  their  debts 
and  made  useful  arteries  of  commerce,  and  a  rea- 
sonable profit  would  be  yielded  to  honest  invest- 
ments. In  addition  to  the  recommendation  of  the 
forfeiture  of  the  charters,  I  would  suggest  that, 
through  the  receiver  to  be  appointed  for  the  Union 
Pacific,  a  suit  be  instituted  with  like  purpose  to 
that  begun  in  1873,  against  the  Credit  Mobilier, 
and  that  the  Attorney  General  be  instructed  to 
institute  proceedings,  either  civil  or  criminal, 
against  all  persons  who  have  rendered  themselves 
liable  for  their  participation  in  the  issue  of  stock 
or  the  making  of  mortgages  or  pledges  upon  the 
property  or  future  earnings  of  the  Union  Pacific 
Company  without  leave  of  Congress ;  against  those 
who  violated  their  trusts  in  connection  with  the 
consolidation  of  the  Kansas  Pacific,  Denver  Pacific 
and  Union  Pacific  in  January,  1880;  against  all 
persons  who  have  rendered  themselves  liable 
through  the  maladministration  of  the  Central 
Pacific,  Sioux  City  and  Pacific,  and  Central 
Branch  Union  Pacific ;  against  telegraph  and  ex- 
press companies,  to  secure  an  accounting  to  the 
Government  for  earnings  on  business  done  on 
bond-aided  lines,  and  to  require  an  accounting  for 
lands  improperly  acquired  from  the  Government, 
and  to  force  the  patenting  of  lands  already  granted 
to  the  companies. 

In  applying  the  remedies  necessary  for  securing 
the  Government  indebtedness,  the  Attorney  Gene- 
ral should  proceed  against  all  persons  and  corpora- 
tions who  in  any  way  were  parties  to  or  partici- 
pants in  the  results  of  any  of  the  illegal  and  fraudu- 
lent acts  which  characterized  the  management  of 
these  corporations  and  resulted  in  the  waste  and 
misappropriation  of  the  funds  of  the  companies  and 
consequent  depreciation  of  the  government  security. 

If  this  recommendation  should  be  adopted,  the 
population  of  the  great  West  through  which  the 


16 

lines  of  road  extend  would  have  these  pubHc  high- 
ways existing  and  managed  as  it  was  intended  by 
law  they  should  be,  in  the  interest  and  for  the  ben- 
efit of  the  people,  and  not  as  subjects  for  stock 
gambling  and  speculative  practices  through  which 
enormous  fortunes  are  amassed  by  railroad  officials 
and  favorites,  while  communities  are  burdened 
and  private  industry  repressed.  In  other  words, 
these  roads,  as  a  result  of  legal  purgation,  would 
be  free,  clear,  and  clean  public  highways,  honestly 
and  lawfully  managed. 

The  time  of  the  Commission  was  so  limited  that 
it  had  no  opportunity  to  visit  the  various  localities 
that  are  served  by  the  Central  Pacific  Railroad 
Company  but  from  the  reports  of  the  railroad 
commission  of  California,  it  is  apparent  that  the 
abuses  of  power  which  have  characterized  the 
management  of  the  Union  Pacific  Company  w^ere 
also  practiced  by  the  Central  Pacific  Railroad 
Company  in  its  relations  with  shippers  and  com- 
munities. Its  conduct  in  this  respect  provoked 
serious  political  contests  in  California,  and  im- 
pelled the  people  of  that  State  to  adopt  amend- 
ments to  the  State  constitution  regulatnig  railroads 
and  creating  a  State  commission  to  protect  ship- 
pers against  the  discriminations  of  the  Central 
Pacific  Company.  In  that  State,  as  in  the  terri- 
tory tributary  to  the  Union  Pacific,  there  was  in- 
terference with  the  lawful  pursuits  of  the  people; 
and  as  appears  in  page  128  of  the  State  railroad 
commission's  report  for  188B,  there  were  fears 
entertained  by  merchants  of  retaliation  by  the  rail- 
road company  if  complaints  should  be  made  against 
it.  With  the  Union  Pacific  Company,  it  devised 
the  special-contract  system  and  also  attempted,  by 
investing  in  other  enterprises  than  those  of  trans- 
portation and  by  pools  and  combinations,  to  control 

trifiG 

Robert  E.  Pattison,  Commissioner. 

Washington,  Becemher  1,  1887. 


7    '•  % 


